Why Earnings Fix Everything
When investors think about risk, they often focus on stock price volatility. But short-term price swings aren’t always the greatest risk. A company that consistently earns money is generally in a much stronger position to survive difficult economic conditions, support its dividend, and continue creating value for shareholders.
Many investors rely on index funds because they offer broad diversification. While indexing has proven to be an effective strategy for many people, market indexes include companies with widely varying levels of profitability and financial strength. My investment philosophy takes a different approach. Companies that consistently generate strong earnings generally represent lower long-term risk than companies that struggle to produce sustainable profits. Earnings are the foundation upon which every successful business is built.
One of the most important financial measures investors can evaluate is adjusted earnings. Adjusted earnings remove many one-time events and accounting distortions that can make reported earnings difficult to interpret. While no single metric tells the entire story, adjusted earnings often provide a clearer picture of a company’s ongoing operating performance and its ability to generate sustainable profits.
Looking forward is just as important as looking backward. Historical earnings tell us where a company has been, but future earnings help us evaluate where it may be headed. That’s why I review annualized earning power and earnings estimates for the coming quarters from multiple independent analysts. A single estimate represents one opinion. A consensus of estimates provides a broader view of a company’s expected earnings and its ability to continue supporting its dividend.
During the construction of the Fly High Investing portfolio, approximately 7,000 publicly traded U.S. companies were evaluated—not by stock price, technical charts, or market hype—but by earnings quality. Companies were required to demonstrate consistent profitability, meaningful dividend yields, strong dividend coverage, and a long history of operational excellence. Only fifty companies met those standards.
Diversification also plays an important role in managing risk. By allocating approximately two percent of the portfolio to each of fifty companies, even a significant decline in a single holding has only a modest impact on the portfolio as a whole. Because consistently profitable companies tend to remain profitable, portfolio turnover has historically been low. Companies remain in the portfolio as long as their earnings continue to support their dividends.
When earnings break down, the stock is gone. No emotion. No hesitation.
No company pays to be included in the portfolio or influences the selection process. Every holding must earn its place through objective financial performance. Earnings reports are monitored continuously, and each company’s qualifications are reviewed as new information becomes available. The investment process is disciplined, systematic, and free from emotion.
The bottom line is simple. Companies that consistently generate strong earnings are generally better positioned to support their dividends, weather economic challenges, and reward long-term investors. Those dividends can then be reinvested, allowing the power of compounding to work over time.
At Fly High Investing, earnings aren’t just another financial metric, they’re the foundation of every investment decision. That’s why I believe earnings fix everything.